NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Financial Statement Presentation
During interim periods, Cabot Oil & Gas Corporation (the Company) follows the same accounting policies disclosed in its Annual Report on Form 10-K for the year ended
December 31, 2015
(Form 10-K) filed with the Securities and Exchange Commission (SEC). The interim financial statements should be read in conjunction with the notes to the consolidated financial statements and information presented in the Form 10-K. In management’s opinion, the accompanying interim condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary for a fair statement. The results for any interim period are not necessarily indicative of the expected results for the entire year.
Certain reclassifications have been made to prior year statements to conform with the current year presentation. These reclassifications have no impact on previously reported net income (loss).
Recently Adopted Accounting Pronouncements
In March 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. In August 2015, the FASB issued ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. The update provides authoritative guidance for debt issuance costs related to line-of-credit arrangements, noting the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The guidance is effective for interim and annual periods beginning after December 15, 2015.
Effective January 1, 2016, the Company adopted ASU No. 2015-03 as a change in accounting principle. The Condensed Consolidated Balance Sheet as of December 31, 2015 has been retrospectively adjusted to reflect the adoption of this guidance, resulting in a
$8.9 million
decrease in both other assets and long term debt related to the debt issuance costs on our senior notes. There was
no
impact to the Company’s Condensed Consolidated Statement of Operations or Statement of Cash Flows.
Recently Issued Accounting Pronouncements
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, as a new Topic, Accounting Standards Codification Topic 718. The areas for simplification in this update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. The guidance is effective for interim and annual periods beginning after December 15, 2016. Early adoption is permitted. An entity that elects early adoption must adopt all of the amendments in the same period. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively. An entity may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method. The Company is currently evaluating the effect that adopting this guidance will have on its financial position, results of operations or cash flows.
In February 2016, the FASB issued ASU No. 2016-02, Leases, as a new Topic, Accounting Standards Codification Topic 842. The new lease guidance supersedes Topic 840. The core principle of the guidance is that a company should recognize the assets and liabilities that arise from leases. The guidance is effective for interim and annual periods beginning after December 15, 2018. This ASU can be adopted using a modified retrospective approach. The Company is currently evaluating the effect that adopting this guidance will have on its financial position, results of operations or cash flows.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, as a new Topic, Accounting Standards Codification Topic 606. The new revenue recognition standard provides a five-step analysis of
transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), which deferred the effective date of ASU No. 2014-09 by one year, making the new standard effective for interim and annual periods beginning after December 15, 2017. This ASU can be adopted either retrospectively or as a cumulative-effect adjustment as of the date of adoption; however, entities reporting under U.S. GAAP are not permitted to adopt the standard earlier than the original effective date for public entities (that is, no earlier than 2017 for calendar year-end entities).
Additionally, in March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus agent considerations (reporting revenue gross versus net), which clarifies the implementation guidance on principal versus agent considerations on such matters. The Company is currently evaluating the effect that adopting this guidance will have on its financial position, results of operations or cash flows.
2. Properties and Equipment, Net
Properties and equipment, net are comprised of the following:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
Proved oil and gas properties
|
|
$
|
7,483,181
|
|
|
$
|
8,821,146
|
|
Unproved oil and gas properties
|
|
324,488
|
|
|
390,434
|
|
Gathering and pipeline systems
|
|
242,962
|
|
|
243,672
|
|
Land, building and other equipment
|
|
114,596
|
|
|
117,848
|
|
|
|
8,165,227
|
|
|
9,573,100
|
|
Accumulated depreciation, depletion and amortization
|
|
(3,327,413
|
)
|
|
(4,596,221
|
)
|
|
|
$
|
4,837,814
|
|
|
$
|
4,976,879
|
|
At
March 31, 2016
, the Company did not have any projects that had exploratory well costs capitalized for a period of greater than
one year
after drilling.
In February 2016, the Company completed the divestiture of certain proved and unproved oil and gas properties in east Texas for approximately
$55.9 million
(subject to customary post close adjustments) and recognized a
$1.4 million
gain on sale of assets. The purchase price included a
$6.3 million
deposit that was received in the fourth quarter of 2015.
3. Equity Method Investments
The Company holds a
25%
equity interest in Constitution Pipeline Company, LLC (Constitution) and a
20%
equity interest in Meade Pipeline Co LLC (Meade). Activity related to
these equity method investments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constitution
|
|
Meade
|
|
Total
|
|
|
Three Months Ended March 31,
|
|
Three Months Ended March 31,
|
|
Three Months Ended March 31,
|
(In thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Balance at beginning of period
|
|
$
|
90,345
|
|
|
$
|
64,268
|
|
|
$
|
13,172
|
|
|
$
|
3,761
|
|
|
$
|
103,517
|
|
|
$
|
68,029
|
|
Contributions
|
|
6,250
|
|
|
3,000
|
|
|
5,402
|
|
|
2,078
|
|
|
11,652
|
|
|
5,078
|
|
Earnings (loss) on equity method investments
|
|
2,011
|
|
|
1,427
|
|
|
(2
|
)
|
|
(6
|
)
|
|
2,009
|
|
|
1,421
|
|
Balance at end of period
|
|
$
|
98,606
|
|
|
$
|
68,695
|
|
|
$
|
18,572
|
|
|
$
|
5,833
|
|
|
$
|
117,178
|
|
|
$
|
74,528
|
|
On April 22, 2016, Constitution announced that the New York State Department of Environmental Conservation (NYSDEC) denied Constitution's application for a section 401 Water Quality Certification (Certification) for the New York State portion of its proposed 124-mile route. Constitution stated that it remains committed to pursuing the project and that it intends to pursue all available options to challenge the legality and appropriateness of NYDEC's decision.
In light of the denial of the Certification and the anticipated actions to challenge the decision, Constitution has revised its target in-service date to the second half of 2018, assuming that the challenge process is satisfactorily and promptly
concluded. Constitution is evaluating the impacts of the denial of the certification on the project, and the Company is evaluating the impact on its investment in Constitution.
During 2016, the Company expects to contribute between approximately
$30.0 million
and
$35.0 million
to its equity method investments. For further information regarding the Company’s equity method investments, refer to
Note 4
of the Notes to the Consolidated Financial Statements in the Form 10-K.
4. Debt and Credit Agreements
The Company’s debt and credit agreements consisted of the following:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
Total Debt
|
|
|
|
|
7.33% weighted-average senior notes
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
6.51% weighted-average senior notes
|
|
425,000
|
|
|
425,000
|
|
9.78% senior notes
|
|
67,000
|
|
|
67,000
|
|
5.58% weighted-average senior notes
|
|
175,000
|
|
|
175,000
|
|
3.65% weighted-average senior notes
|
|
925,000
|
|
|
925,000
|
|
Revolving credit facility
|
|
—
|
|
|
413,000
|
|
|
|
$
|
1,612,000
|
|
|
$
|
2,025,000
|
|
Unamortized debt issuance costs
|
|
(8,808
|
)
|
|
(8,861
|
)
|
Total debt, net
(1)
|
|
$
|
1,603,192
|
|
|
$
|
2,016,139
|
|
(1)
Includes
$20.0 million
of current portion of long-term debt at
March 31, 2016
and
December 31, 2015
, respectively.
At
March 31, 2016
, the Company was in compliance with all restrictive financial covenants, as amended, for both its revolving credit facility and senior notes. As of
March 31, 2016
, based on the Company's asset coverage and leverage ratios, there were
no
interest rate adjustments required for the Company's senior notes.
At
March 31, 2016
, the Company had
no
borrowings outstanding under its credit facility and had unused commitments of
$1.8 billion
. The Company’s weighted-average effective interest rates for the revolving credit facility for the
three
months ended
March 31, 2016
and
2015
were approximately
2.3%
and
2.6%
, respectively.
Subsequent Event
The borrowing base is redetermined annually under the terms of the revolving credit facility on April 1. In addition, either the Company or the banks may request an interim redetermination twice a year or in connection with certain acquisitions or sales of oil and gas properties. Effective
April 19, 2016
, the Company’s borrowing base was reduced from
$3.4 billion
to
$3.2 billion
. The maximum credit amount under the revolving credit facility remained unchanged at
$1.8 billion
; however, the available commitments were reduced to
$1.6 billion
.
5. Derivative Instruments and Hedging Activities
As of
March 31, 2016
, the Company had the following outstanding commodity derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collars
|
|
Swaps
|
|
|
|
|
|
|
|
Floor
|
|
Ceiling
|
|
|
Type of Contract
|
|
Volume
|
|
Contract Period
|
|
Range
|
|
Weighted-Average
|
|
Range
|
|
Weighted- Average
|
|
Weighted- Average
|
Natural gas
|
|
52.0
|
|
Bcf
|
|
Apr. 2016 - Oct. 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.51
|
|
Crude oil
|
|
1.4
|
|
Mmbbl
|
|
Apr. 2016 - Dec. 2016
|
|
$
|
38.00
|
|
|
$
|
38.00
|
|
|
$47.10-$47.50
|
|
$
|
47.28
|
|
|
|
In the table above, natural gas prices are stated per Mcf and crude oil prices are stated per barrel.
Effect of Derivative Instruments on the Condensed Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments
|
|
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
(In thousands)
|
|
Balance Sheet Location
|
|
March 31,
2016
|
|
December 31,
2015
|
|
March 31,
2016
|
|
December 31,
2015
|
Commodity contracts
|
|
Derivative instruments (current assets)
|
|
$
|
18,994
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Offsetting of Derivative Assets and Liabilities in the Condensed Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
Derivative assets
|
|
|
|
|
|
|
Gross amounts of recognized assets
|
|
$
|
18,994
|
|
|
$
|
—
|
|
Gross amounts offset in the statement of financial position
|
|
—
|
|
|
—
|
|
Net amounts of assets presented in the statement of financial position
|
|
18,994
|
|
|
—
|
|
Gross amounts of financial instruments not offset in the statement of financial position
|
|
—
|
|
|
—
|
|
Net amount
|
|
$
|
18,994
|
|
|
$
|
—
|
|
Effect of Derivative Instruments on the Condensed Consolidated Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
(In thousands)
|
|
2016
|
|
2015
|
Cash received (paid) on settlement of derivative instruments
|
|
|
|
|
|
|
Gain (loss) on derivative instruments
|
|
$
|
—
|
|
|
$
|
37,685
|
|
Non-cash gain (loss) on derivative instruments
|
|
|
|
|
|
|
Gain (loss) on derivative instruments
|
|
18,994
|
|
|
(3,562
|
)
|
|
|
$
|
18,994
|
|
|
$
|
34,123
|
|
6. Fair Value Measurements
The Company follows the authoritative guidance for measuring fair value of assets and liabilities in its financial statements. For further information regarding the fair value hierarchy, refer to
Note 1
of the Notes to the Consolidated Financial Statements in the Form 10-K.
Financial Assets and Liabilities
The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Balance at March 31, 2016
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan
|
|
$
|
13,013
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,013
|
|
Derivative instruments
|
|
—
|
|
|
15,347
|
|
|
3,647
|
|
|
18,994
|
|
Total assets
|
|
$
|
13,013
|
|
|
$
|
15,347
|
|
|
$
|
3,647
|
|
|
$
|
32,007
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan
|
|
$
|
25,144
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,144
|
|
Total liabilities
|
|
$
|
25,144
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Balance at December 31, 2015
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan
|
|
$
|
12,921
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,921
|
|
Total assets
|
|
$
|
12,921
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,921
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan
|
|
$
|
22,371
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,371
|
|
Total liabilities
|
|
$
|
22,371
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,371
|
|
The Company’s investments associated with its deferred compensation plan consist of mutual funds and deferred shares of the Company’s common stock that are publicly traded and for which market prices are readily available.
The derivative instruments were measured based on quotes from the Company’s counterparties. Such quotes have been derived using an income approach that considers various inputs including current market and contractual prices for the underlying instruments, quoted forward prices for natural gas and crude oil, basis differentials, volatility factors and interest rates, such as a LIBOR curve for a similar length of time as the derivative contract term as applicable. Estimates are verified using relevant NYMEX futures contracts and/or are compared to multiple quotes obtained from counterparties for reasonableness. The determination of the fair values presented above also incorporates a credit adjustment for non-performance risk. The Company measured the non-performance risk of its counterparties by reviewing credit default swap spreads for the various financial institutions with which it has derivative transactions, while non-performance risk of the Company is evaluated using a market credit spread provided by the Company’s bank. The Company has not incurred any losses related to non-performance risk of its counterparties and does not anticipate any material impact on its financial results due to non-performance by third parties.
The most significant unobservable inputs relative to the Company’s Level 3 derivative contracts are basis differentials and volatility factors. An increase (decrease) in these unobservable inputs would result in an increase (decrease) in fair value, respectively. The Company does not have access to the specific assumptions used in its counterparties’ valuation models. Consequently, additional disclosures regarding significant Level 3 unobservable inputs were not provided.
The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
(In thousands)
|
|
2016
|
|
2015
|
Balance at beginning of period
|
|
$
|
—
|
|
|
$
|
85,958
|
|
Total gains (losses) (realized or unrealized):
|
|
|
|
|
|
|
Included in earnings
|
|
3,647
|
|
|
17,840
|
|
Included in other comprehensive income
|
|
—
|
|
|
—
|
|
Settlements
|
|
—
|
|
|
(20,473
|
)
|
Transfers in and/or out of level 3
|
|
—
|
|
|
—
|
|
Balance at end of period
|
|
$
|
3,647
|
|
|
$
|
83,325
|
|
|
|
|
|
|
Change in unrealized gains (losses) relating to assets and liabilities still held at the end of the period
|
|
$
|
3,647
|
|
|
$
|
(2,663
|
)
|
There were no transfers between Level 1 and Level 2 fair value measurements for the
three
months ended
March 31, 2016
and
2015
.
Non-Financial Assets and Liabilities
The Company discloses or recognizes its non-financial assets and liabilities, such as impairments, at fair value on a nonrecurring basis. As
none
of the Company’s non-financial assets and liabilities were measured at fair value as of
March 31, 2016
and
2015
, additional disclosures were not required.
The estimated fair value of the Company’s asset retirement obligation at inception is determined by utilizing the income approach by applying a credit-adjusted risk-free rate, which takes into account the Company’s credit risk, the time
value of money, and the current economic state to the undiscounted expected abandonment cash flows. Given the unobservable nature of the inputs, the measurement of the asset retirement obligations was classified as Level 3 in the fair value hierarchy.
Fair Value of Other Financial Instruments
The estimated fair value of other financial instruments is the amount at which the instrument could be exchanged currently between willing parties. The carrying amount reported in the Condensed Consolidated Balance Sheet for cash and cash equivalents approximates fair value due to the short-term maturities of these instruments. Cash and cash equivalents are classified as Level 1 in the fair value hierarchy and the remaining financial instruments are classified as Level 2.
The Company uses available market data and valuation methodologies to estimate the fair value of debt. The fair value of debt is the estimated amount the Company would have to pay a third party to assume the debt, including a credit spread for the difference between the issue rate and the period end market rate. The credit spread is the Company’s default or repayment risk. The credit spread (premium or discount) is determined by comparing the Company’s senior notes and revolving credit facility to new issuances (secured and unsecured) and secondary trades of similar size and credit statistics for both public and private debt. The fair value of all senior notes and the revolving credit facility is based on interest rates currently available to the Company. The Company’s debt is valued using an income approach and classified as Level 3 in the fair value hierarchy.
The carrying amount and fair value of debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
(In thousands)
|
|
Carrying
Amount
|
|
Estimated Fair
Value
|
|
Carrying
Amount
|
|
Estimated Fair
Value
|
Debt
|
|
$
|
1,603,192
|
|
|
$
|
1,506,177
|
|
|
$
|
2,016,139
|
|
|
$
|
1,839,530
|
|
Current maturities
|
|
(20,000
|
)
|
|
(20,219
|
)
|
|
(20,000
|
)
|
|
(20,378
|
)
|
Long-term debt
|
|
$
|
1,583,192
|
|
|
$
|
1,485,958
|
|
|
$
|
1,996,139
|
|
|
$
|
1,819,152
|
|
7. Asset Retirement Obligations
Activity related to the Company’s asset retirement obligations is as follows:
|
|
|
|
|
|
(In thousands)
|
|
Three Months Ended
March 31, 2016
|
Balance at beginning of period
|
|
$
|
145,606
|
|
Liabilities incurred
|
|
1,746
|
|
Liabilities settled
|
|
(53
|
)
|
Liabilities divested
|
|
(16,353
|
)
|
Accretion expense
|
|
1,849
|
|
Balance at end of period
|
|
$
|
132,795
|
|
As of
March 31, 2016
and
December 31, 2015
, approximately
$2.0 million
is included in accrued liabilities in the Condensed Consolidated Balance Sheet, which represents the current portion of the Company’s asset retirement obligation.
8. Commitments and Contingencies
Contractual Obligations
The Company has various contractual obligations in the normal course of its operations. There have been no material changes to the Company’s contractual obligations described under “Transportation and Gathering Agreements,” “Drilling Rig Commitments” and “Lease Commitments” as disclosed in
Note 9
in the Notes to Consolidated Financial Statements included in the Form 10-K.
Legal Matters
The Company is a defendant in various other legal proceedings arising in the normal course of business. All known liabilities are accrued when management determines they are probable based on its best estimate of the potential loss. While the outcome and impact of these legal proceedings on the Company cannot be predicted with certainty, management believes that the resolution of these proceedings will not have a material effect on the Company’s financial position, results of operations or cash flows.
Contingency Reserves
When deemed necessary, the Company establishes reserves for certain legal proceedings. The establishment of a reserve is based on an estimation process that includes the advice of legal counsel and subjective judgment of management. While management believes these reserves to be adequate, it is reasonably possible that the Company could incur additional losses with respect to those matters in which reserves have been established. The Company believes that any such amount above the amounts accrued would not be material to the Condensed Consolidated Financial Statements. Future changes in facts and circumstances not currently foreseeable could result in the actual liability exceeding the estimated ranges of loss and amounts accrued.
9. Capital Stock
On
February 22, 2016
, the Company entered into an underwriting agreement, pursuant to which the Company sold an aggregate of
44,000,000
shares of common stock at a price to the Company of
$19.675
per share. On
February 26, 2016
, the Company received
$865.7 million
in net proceeds, after deducting underwriting discounts and commissions. On
March 2, 2016
, the Company sold an additional
6,600,000
shares of common stock as a result of the exercise of the underwriters’ option to purchase additional shares and received
$129.9 million
in net proceeds. These net proceeds were used for general corporate purposes, including repaying indebtedness under the Company’s revolving credit facility and funding a portion of our capital program.
10. Stock-based Compensation
General
Stock-based compensation expense in the
first
quarter of
2016
and
2015
was
$10.6 million
and
$5.9 million
, respectively, and is included in general and administrative expense in the Condensed Consolidated Statement of Operations.
During the first
three
months of
2016
, the Company recorded a shortfall of
$2.0 million
as a result of book compensation cost for employee stock-based compensation exceeding the federal and state tax deductions for certain awards that vested during the period, resulting in a reduction of the Company's windfall tax benefit that is recorded in additional paid in capital in the Condensed Consolidated Balance Sheet. During the first
three
months of
2015
, the Company realized a
$3.4 million
tax benefit related to the federal and state tax deductions in excess of book compensation cost for employee stock-based compensation. The Company is able to recognize a tax benefit only to the extent it reduces the Company’s income taxes payable.
Refer to
Note 13
of the Notes to the Consolidated Financial Statements in the Form 10-K for further description of the various types of stock-based compensation awards and the applicable award terms.
Restricted Stock Units
During the first
three
months of
2016
,
61,805
restricted stock units were granted to non-employee directors of the Company with a weighted-average grant date value of
$20.28
per unit. The fair value of these units is measured based on the closing stock price on grant date and compensation expense is recorded immediately. These units immediately vest and are issued when the director ceases to be a director of the Company.
Performance Share Awards
The performance period for the awards granted in
2016
commenced on
January 1, 2016
and ends on
December 31, 2018
. The Company used an annual forfeiture rate assumption ranging from
0%
to
5%
for purposes of recognizing stock-based compensation expense for its performance share awards.
Performance Share Awards Based on Internal Performance Metrics
The fair value of performance share award grants based on internal performance metrics is based on the closing stock price on the grant date. Each performance share award represents the right to receive up to
100%
of the award in shares of common stock.
Employee Performance Share Awards.
During the first
three
months of
2016
,
435,990
Employee Performance Share Awards were granted at a grant date value of
$20.49
per share. The performance metrics are set by the Company’s compensation committee and are based on the Company’s average production, average finding costs and average reserve replacement over a
three
-year performance period. Based on the Company’s probability assessment at
March 31, 2016
, it is considered probable that the criteria for these awards will be met.
Hybrid Performance Share Awards.
During the first
three
months of
2016
,
271,938
Hybrid Performance Share Awards were granted at a grant date value of
$20.49
per share.
The 2016 awards vest 25% on each of the first and second anniversary dates and 50% on the third anniversary
, provided that the Company has
$100 million
or more of operating cash flow for the year preceding the vesting date, as set by the Company’s compensation committee. If the Company does not meet the performance metric for the applicable period, then the portion of the performance shares that would have been issued on that anniversary date will be forfeited. Based on the Company’s probability assessment at
March 31, 2016
, it is considered probable that the criteria for these awards will be met.
Performance Share Awards Based on Market Conditions
These awards have both an equity and liability component, with the right to receive up to the first
100%
of the award in shares of common stock and the right to receive up to an additional
100%
of the value of the award in excess of the equity component in cash. The equity portion of these awards is valued on the grant date and is not marked to market, while the liability portion of the awards is valued as of the end of each reporting period on a mark-to-market basis. The Company calculates the fair value of the equity and liability portions of the awards using a Monte Carlo simulation model.
TSR Performance Share Awards.
During the first
three
months of
2016
,
407,907
TSR Performance Share Awards were granted and are earned, or not earned, based on the comparative performance of the Company’s common stock measured against a predetermined group of companies in the Company’s peer group over a
three
-year performance period.
The following assumptions were used to determine the grant date fair value of the equity component (February 17, 2016) and the period-end fair value of the liability component of the TSR Performance Share Awards:
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
March 31, 2016
|
Fair value per performance share award
|
|
$
|
18.57
|
|
|
$5.40 - $11.24
|
Assumptions:
|
|
|
|
|
|
Stock price volatility
|
|
34.4
|
%
|
|
36.1% - 51.9%
|
Risk free rate of return
|
|
0.9
|
%
|
|
0.5% - 0.8%
|
11. Earnings per Common Share
Basic earnings per share (EPS) is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted EPS is similarly calculated except that the common shares outstanding for the period is increased using the treasury stock method to reflect the potential dilution that could occur if outstanding stock appreciation rights were exercised and stock awards were vested at the end of the applicable period.
The following is a calculation of basic and diluted weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
(In thousands)
|
|
2016
|
|
2015
|
Weighted-average shares - basic
|
|
431,841
|
|
|
413,344
|
|
Dilution effect of stock appreciation rights and stock awards at end of period
|
|
—
|
|
|
1,427
|
|
Weighted-average shares - diluted
|
|
431,841
|
|
|
414,771
|
|
|
|
|
|
|
Weighted-average shares excluded from diluted EPS due to the anti-dilutive effect
|
|
700
|
|
|
401
|
|
12. Additional Balance Sheet Information
Certain balance sheet amounts are comprised of the following:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
Accounts receivable, net
|
|
|
|
|
|
|
Trade accounts
|
|
$
|
97,205
|
|
|
$
|
116,772
|
|
Joint interest accounts
|
|
2,215
|
|
|
2,013
|
|
Other accounts
|
|
2,484
|
|
|
2,557
|
|
|
|
101,904
|
|
|
121,342
|
|
Allowance for doubtful accounts
|
|
(1,033
|
)
|
|
(1,113
|
)
|
|
|
$
|
100,871
|
|
|
$
|
120,229
|
|
|
|
|
|
|
Inventories
|
|
|
|
|
|
|
Tubular goods and well equipment
|
|
$
|
14,186
|
|
|
$
|
14,655
|
|
Natural gas in storage
|
|
1,762
|
|
|
2,364
|
|
Other accounts
|
|
—
|
|
|
30
|
|
|
|
$
|
15,948
|
|
|
$
|
17,049
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
Deferred compensation plan
|
|
$
|
13,013
|
|
|
$
|
12,921
|
|
Debt issuance costs
|
|
13,957
|
|
|
14,871
|
|
Other accounts
|
|
59
|
|
|
64
|
|
|
|
$
|
27,029
|
|
|
$
|
27,856
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
|
Trade accounts
|
|
$
|
28,942
|
|
|
$
|
30,038
|
|
Natural gas purchases
|
|
1,101
|
|
|
2,231
|
|
Royalty and other owners
|
|
69,776
|
|
|
75,106
|
|
Accrued capital costs
|
|
26,930
|
|
|
27,479
|
|
Taxes other than income
|
|
16,904
|
|
|
14,628
|
|
Other accounts
|
|
4,341
|
|
|
10,925
|
|
|
|
$
|
147,994
|
|
|
$
|
160,407
|
|
|
|
|
|
|
Accrued liabilities
|
|
|
|
|
|
|
Employee benefits
|
|
$
|
8,725
|
|
|
$
|
13,870
|
|
Taxes other than income
|
|
6,104
|
|
|
5,073
|
|
Income taxes payable
|
|
97
|
|
|
—
|
|
Other accounts
|
|
2,900
|
|
|
5,980
|
|
|
|
$
|
17,826
|
|
|
$
|
24,923
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
Deferred compensation plan
|
|
$
|
25,144
|
|
|
$
|
22,371
|
|
Other accounts
|
|
3,596
|
|
|
3,653
|
|
|
|
$
|
28,740
|
|
|
$
|
26,024
|
|